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84-F-68 - Interest bearing Trust Account




May lawyers place client's funds in Interest-Bearing Accounts?

Are there circumstances where a lawyer must place a client's funds at interest for the benefit of the client? 

What ethical duties are imposed when an Interest-Bearing Account is used?

These inquiries have been addressed in American Bar Association Formal Opinion 348, dated July 23, 1982, which is adopted and incorporated herein as the formal ethics opinion of the Board of Professional Responsibility of the Supreme Court of Tennessee, to the extent quoted herein, to-wit:


Historically, clients' funds entrusted to lawyers in the United States have been placed in non-interest bearing bank checking accounts maintained by lawyers separate from their own funds.1 Typically these funds are held temporarily for use in a particular transaction in behalf of the client and must be readily available for this purpose. Because of the impracticability of establishing a separate account for each client, all client funds generally are commingled in the lawyer's trust account. Since it is impracticable to calculate interest on each client's funds when commingled with the funds of other clients, the lawyer's trust account is left uninvested. For years, clients have accepted this practice, apparently recognizing that the earnings potential of their funds in relation to the administrative costs would not justify investing the funds.

As a consequence, the depository institutions have had the use of the funds without payment of any interest. Occasionally, a client's funds are deposited in a separate account at interest for the benefit of the client where the amount and expected holding periods make it obvious that the interest earned will exceed the administrative costs of placing the funds at interest for the client.


The Model Code does not directly address the subject of interest-bearing lawyer trust accounts. While DR 9-102 provides rules concerning a lawyer's handling of client funds, neither that Disciplinary Rule nor any other specifically outlines the lawyer's duties when client funds are placed at interest. Nor do the Ethical Considerations of Canons provide direct
guidance for this type of lawyer activity.

It is clear, however, that nothing in the Model Code prohibits a lawyer from placing clients' funds in interest-bearing accounts so long as the other requirements of DR 9-102 are met.2


In addition to expenses created by the notification, recordkeeping and accounting requirements of DR 9-102(B), lawyers may incur other costs in attempting to place clients' funds at interest. Income tax filings may be necessary to enable the client to report the interest earned on the funds, and bank handling fees may further reduce the potential return. It is evident, therefore, that in many --if not most -- instances, the accounting and administrative costs, plus any bank charges, will more than offset the potential gains to the client. Thus, while no ethical rule proscribes placing client funds at interest for the benefit of an individual client, administrative costs and practical considerations often will make it self-defeating for the lawyer to attempt to obtain interest on small sums or even on large amounts of clients' funds held for short periods of time.3

In apparent recognition of these practical difficulties, the Model Code does not specify that a lawyer has the duty to invest clients' nominal or short-term funds entrusted to the lawyer. The thrust of DR 9-102 is that lawyers must neither misuse a client's funds nor impede their prompt delivery. The focus is on safekeeping, accounting and delivery, and not on investment of the funds.

The law of agency and trusts governs when a lawyer has a fiduciary duty to invest a client's funds. A trustee may be liable for lost earnings on funds left with the trustee for investment and kept uninvested for an unreasonably long time. See 2 Scott, The Law of Trusts, Sections 180.3, 181 (3d ed. 1967 and Supp. 1981). Where, however, the circumstances show that the trustee 'was not under a duty to invest trust money but merely to safeguard it, he is not liable for interest because of this failure to invest.' Id. at 1464.4

This latter exception applies to most instances where a lawyer is entrusted with client funds. However, where the amount of funds held for a specific client and the expected holding period make it obvious that the interest which would be earned would exceed the lawyer's administrative costs and the bank charges, the lawyer should consult the client and follow the client's instructions as to investing. In the case of an extreme violation of the lawyer's fiduciary duty to invest a client's funds amounting to gross neglect of a client's matter, moreover the Model Code, would provide a basis for professional discipline. See DR 6-101(A)(3) [neglect]; DR 6-101(A)(1) [incompetence]; and DR 7-101(A)(1) [zealous representation].


To comply with the requirements which DR 9-102 establishes with respect to the handling of funds entrusted to a lawyer, the lawyer must:

(a) Promptly notify a client of the receipt of the client's funds [DR 9-102(B)(1)];
(b) Maintain complete records of all funds of a client coming into the possession of the lawyer and render appropriate accounts to the client regarding the funds [DR 9-102(B)(3)];
(c) Promptly pay to the client as requested by the client the funds in the possession of the lawyer which the client is entitled to receive [DR 9-102(B)(4)].

These notification, recordkeeping and payment requirements apply to the interest generated by a separate bank account established by a lawyer for an individual client because that interest, when posted to the client's account, becomes funds of the client.

This 29th day of May, 1984.


Henry H. Hancock
W. J. Flippin
Edwin C. Townsend


1Clients' funds generally must be held separate from the lawyer's funds. Model Code of Professional Responsibility, DR 9-102(A) (1980). A lawyer who commingles clients' funds with his own may be guilty of a crime. E.G., Md. Ann. Code Art. 10, Section 44 (1957).

2DR 9-102(B) provides that a lawyer shall:
(1) Promptly notify a client of the receipt of his funds, securities, or other properties.
(2) Identify and label securities and properties of a safe deposit box or other place of safe keeping as soon as practicable.
(3) Maintain complete records of all funds, securities, and other properties of a client coming into the possession of the lawyer and render appropriate accounts to his client regarding them.
(4) Promptly pay or deliver to the client as requested by a client the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive.

3Electronic subaccount techniques that track earnings and report them on a multitude of small accounts are being offered by a few depository institutions in some states. But even were these accounts widely available, bank charges and other costs of administering the accounts, such as accounting to the client and income tax reporting, usually would make their use infeasible in most circumstances.

4See also Boone, A Source of Revenue for the Improvement of Legal Services, Part 1, 10 St. Mary's L. J. 539, 541-42 (1979); Los Angeles County, California, Ethics Opinion 388 (April 21, 1981); In Re: Interest on Trust Accounts, 402 So. 2d 389, 394 (Fla. 1981).